MDC Trilogy Group finalised its acquisition of a $15 million Sydney-based real estate agency, accelerating their strategy to consolidate the Australian real estate industry.
The acquisition of Devine Real Estate follows MDC Trilogy Group’s 2022 purchases of agencies in Sydney and Toowoomba, bringing its portfolio of assets to more than $17 million.
MDC Trilogy Group is a joint venture between fund manager Trilogy Funds and corporate advisory firm Murray Darling Capital (MDC), established to acquire and manage a significant portfolio of property management assets.
The acquisitions by MDC Trilogy Group were funded by loan notes from the MDC Trilogy Wholesale Yield Fund I (the Fund), which opened to wholesale investors in September 2022.
The Fund is designed to offer a 10% pa income stream with the potential for bonus payments, via the loan notes which fund a portfolio of Australian residential property assets (predominantly rent rolls).
Recent research conducted by Trilogy Funds highlighted the importance of consistent income to investors, with more than 50% of clients surveyed flagging it as ‘very important’.
MDC Trilogy Group Director, Henry Elgood, says that understanding the market appetite is instrumental in guiding product development.
“Government bonds and corporate debt typically form the core allocation to income-focused investments within an investor’s portfolio. Investors are constantly looking for alternatives. This product is an innovative way to address the market appetite for income via debt exposure to a familiar asset class.”
Leading real estate business, The Agency, has been engaged to manage the property-related operations of the assets acquired by MDC Trilogy Group and the agencies acquired by MDC Trilogy Group will operate under The Agency brand.
MDC Trilogy Group Director Michael Birch said the settlement of the Group’s first three property management assets was a significant milestone for MDC Trilogy Group.
“The successful launch of the Fund and MDC Trilogy’s quality acquisitions in November 2022 are a significant milestone and provide confidence in the consistent and scalable process we have developed to deliver competitive yield from the acquisition and management of property management assets,” Mr Birch said.
“Completing the acquisition of Devine Real Estate, along with our purchases in Manly and Toowoomba, brings the initial MDC Trilogy portfolio to more than $17 million, with around 3,000 properties under management,” Mr Birch said.
“This follows the successful launch of the MDC Trilogy Wholesale Yield Fund in September, which has seen strong interest from wholesale investors providing the capital needed to start building the asset portfolio.
“These first purchases reflect our strategy to initially target investments in New South Wales, Queensland, and Victoria with an emphasis on attractively priced assets located in areas with favourable demographics, strong rental appreciation potential and high demand from renters and investors.
“Due diligence is currently underway on several other potential acquisitions, with a strong pipeline identified over the next 12 months.”
Mr Birch said property management assets offered some of the strongest returns in the Australian residential property sector.
“The Australian residential property sector has been one of the strongest performing asset classes during the past five years, however there is a degree of volatility in returns from direct residential property investment due to changing interest rates”
“Our view is that in comparison, property management assets generally offer greater tenant diversity and generate higher and less volatile returns.”
Mr Elgood explained that the potential for lower volatility returns is what made the proposition for a debt-based product attractive.
“The potentially lower volatility returns from property management assets makes it viable for us to offer investors a high interest-paying, fixed unit price debt-based product, and an alternative to other income investments.
Mr Birch said the real estate industry is ripe for disruption and consolidation with advances in technology, rising costs and fragmented ownership of real estate offices across Australia.
“What we’re seeing in the industry is real estate agents are finding it increasingly difficult to access the capital they need to build their own rent rolls through acquisition or organic growth.
“They are either focused on the sales side of their businesses or don’t always have the scale of rent roll or staff to drive optimal value from their portfolio of properties under management.
“Advances in technology are facilitating improved processes and efficiencies that will improve the tenant and landlord experience and increase the returns of the large property management portfolios being acquired.
“These value-add management processes are already being deployed by The Agency, who will be responsible for operational management of the property management assets, property management teams and performance of sales agents in the businesses acquired by MDC Trilogy Group.
“In addition to strategic acquisitions, MDC Trilogy will drive growth organically by building existing property management portfolios and driving operational efficiencies by leveraging The Agency’s technology platform.”
Portfolio income is expected to be derived from letting fees, management fee rights to the portfolio of properties on the rent rolls and a portion of sales commissions generated by the agents when properties within the portfolio are sold, as well as income from any other assets of the portfolio.
Open to wholesale investors, the Fund is targeting a net distribution rate of 10.00% p.a. paid quarterly. The Fund has successfully achieved this distribution rate for the quarters ended December 2022 and March 2023.
About MDC Trilogy Group
MDC Trilogy Group brings together leading corporate advisory firm Murray Darling Capital and Trilogy Funds, one of Australia’s leading property-based fund managers, who have designed a new investment opportunity.
MDC Trilogy has undertaken extensive due diligence and risk management to reduce risks associated with the portfolio of assets to be held by MDC Trilogy, including partnering with a recognised national real easter brand, retaining existing agency staff, fostering a strong referral network, acquiring assets with a long duration, and creating a new model that is difficult to replicate.
The MDC Trilogy Wholesale Yield Fund will provide funding via loan notes for the acquisition of property management assets by MDC Trilogy Group. The Fund does not own the assets of the portfolio, but rather gains economic exposure to the income generated by the portfolio.
The Fund and MDC Trilogy Group management model has been structured to meet regulatory requirements of Australian real estate licensing.
Related Articles:
This article is issued by MDC Trilogy Investment Management I Pty Ltd ATF MDC Trilogy Investment Management I Trust. (MDC Trilogy Investment Management). MDC Trilogy Investment Management has a CAR No. 001298231 authorised by Gibraltar Capital Pty Limited ACN 610 194 986 AFSL 493813. This article is only intended for investors who meet the definition of a wholesale investor as defined in the Corporations Act 2001. This content is general and you should consider whether the product is suitable for you and your personal circumstances and we recommend that you seek personal financial product advice on your objectives, financial situation or needs and read the relevant information memorandum in full before making any investment decision. The performance of this investment is not guaranteed by Trilogy Funds, Murray Darling Capital or any of their entities.
